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    IRAs: How to make an early withdrawal

    Exceptions to 10% penalty include medical expenses, first-time home purchase

    Joel M. Blau, CFPJoel M. Clau, CFP Ronald J. Paprocki, JD, CFP, CHBCRonald J. Paprocki, JD, CFP, CHBC


    Can I make individual retirement account withdrawals prior to age 59½ without penalty?

    For one reason or another, you may need to take some money out of an IRA before reaching retirement. You can withdraw money from an IRA at any time and for any reason, but it's important to keep in mind that most IRA withdrawals are at least partially taxable. In other words, you'll owe regular income tax on the amount. In addition, the taxable portion of a withdrawal taken before age 59½, which is called an "early withdrawal," will be subject to a 10% penalty, unless you qualify for an exception. 

    Related: How a second marriage affects estate planning

    Exceptions to the 10% IRS early withdrawal penalty include:

    Withdrawals for medical expenses. If you have qualified medical expenses in excess of 10% of your adjusted gross income (AGI), early IRA withdrawals up to the amount of that excess are exempt from the 10% penalty. To take advantage of this exception, you don't need to trace the withdrawn amount to the medical expenses. However, those expenses must be paid in the same year during which you take the early withdrawal.

    Substantially equal periodic payments (SEPPs). These are annual annuity-like withdrawals that must be taken for at least 5 years or until you reach age 59½, whichever comes later. The rules for SEPPs are complicated, so you may want to get your tax adviser involved to avoid potential issues.

    Withdrawals after death. Amounts withdrawn from an IRA after the IRA owner's death are always free of the 10% penalty. However, this exception isn't available for funds rolled over into a surviving spouse's IRA or if the surviving spouse elects to treat the inherited IRA as his or her own account. If the surviving spouse needs some of the inherited funds, they should be left in the inherited IRA (in other words, the one set up for the deceased spouse). Then, the surviving spouse can withdraw the needed funds from the inherited IRA without any 10% penalty.

    Also see: Health savings account provides triple tax benefit

    Withdrawals after disability. This exception applies to amounts paid to an IRA owner who is found to be physically or mentally disabled to the extent they cannot engage in their customary paid job or a comparable one.

    Next: Withdrawals for first-time home purchasers (up to a lifetime limit)

    Joel M. Blau, CFP
    Mr. Blau is chief executive officer of MEDIQUS Asset Advisors, Inc., in Chicago. He can be reached at 800-883-8555 or [email protected]
    Ronald J. Paprocki, JD, CFP, CHBC
    Mr. Paprocki is chief executive officer of MEDIQUS Asset Advisors, Inc. in Chicago.


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